You have won the bidding war on the home of your dreams; you have secured financing; you are ready to close and you have one inspection left. The inspection is scheduled for the date of closing and at four pm on the day of closing, on your final walk through of the property, you realize the stove does not work, what are our options?
When purchasing a property any number of issues can arise. An appliance that was meant to be in “good working order” does not function; the property zoning is not as promised; or the vendor refuses to complete the transaction on the set closing date. You must now determine whether the breach in the contract, the Agreement of Purchase and Sale (the “APS”) results in your being entitled to damages, an abatement (or reduction) in the purchase price or is the breach so bad it results in the deal not closing as a result.
When considering a real estate transaction there are a number of different elements that arise from contract law. We must determine if the problem is a Condition, a Warranty or a Representation because what we can do going forward depends on figuring this out.
CONDITION OR WARRANTY
In every APS there are a number of terms, everything from price, closing date, what is included, etc. We need to figure out when a term becomes breached whether it is a warranty or condition. Part of doing this means we look to the intentions of the parties.
A warranty is a representation that the thing being sold is as promised or represented. Usually a breach of warranty results in damages or an abatement. A condition is such that, the person receiving the benefit of the condition would not have entered into the contract unless he had been promised strict performance of the condition, and that this ought to have been apparent to the person making the promise. A condition is a term that a failure by the parties amounts to a failure of a contract.
It would seem then that a non-functioning stove is merely a warranty and in order to bring an action for a breach of warranty, the purchaser would have to complete the purchase and claim damages for the vendor’s failure to satisfy the particular term.
REPRESENTATIONS
Remedies may also be available if the vendor, before or at the time of the APS, held out a representation. The representation must induce the purchaser to purchase the property and the representation would have to be false and relied on.
There are two main types of representations: fraudulent; and innocent. Fraudulent is untrue and made with the intent to deceive. Fraudulent misrepresentation permits the wronged party to cancel the contract and to sue for damages based on his or her out-of-pocket losses, including any damages that flow directly or indirectly from the breach of the APS.
An innocent representation may be purely innocent. If that is the case the mistaken party is entitled to cancel the contract and get back their deposit, but not damages. Sometimes the representation is made in a way that it is negligent. This mean that the person making the representation, did so in a way that he or she failed to take proper care in making the representation. An example of a negligent representation would be a situation where the person selling had a deck. The deck was built by the owner before him. You ask for a representation that the deck was built properly with a permit and without checking the Vendor says without ever having checked, “yes it was built perfectly, with a permit”. During our search we discover this is untrue. This would be a negligent misrepresentation.
Therefore it is important to discuss your agreement of purchase and sale with your lawyer or real estate professional. If your real estate transaction is turning south, you must know your rights and your possible damages. Speak to your lawyer early and often. Your lawyer will help you determine your rights, and remedies. Otherwise a broken stove, handled incorrectly, can end up cooking your goose.
